Amazon’s Post-Pandemic Hangover; Apple Avoids Carnage

Greetings!

Headed into this earnings season, there was a lot of concern that big tech companies would be reporting ugly quarters left and right. So far, though, Amazon is the only one to truly lay an egg. We’re not talking about the $3.8 billion net loss the company reported for the first quarter, a paper-only loss due to a drop in the value of shares the company holds in electric truck maker Rivian Automotive. And technically, the dreadful 7% net sales growth that Amazon reported—to $116.4 billion—was at the high end of its prior guidance for the period. So there were no surprises in those areas. 

But Amazon jolted investors with plenty of other figures. The company’s retail-dominated North American and international consumer businesses both posted operating losses for the first quarter. Sales at Amazon’s online business shrank 3%. The company forecast more overall weakness for the future, projecting revenue would only grow in the second quarter between 3% and 7%. Then there was an unusually downbeat quote in the company’s earnings release from Andy Jassy, Amazon’s newish CEO. After bragging about AWS’ 37% revenue growth in the first quarter, Jassy reminded people of the double-digit annual revenue growth the company’s consumer business showed over the past two years, when the world went on a pandemic-driven online shopping binge. But that felt like an aging rock band inviting fans to applaud it for its past hits, which may be partly why Amazon shares fell more than 9% in after-hours trading.       

On a call with Wall Street analysts, Amazon’s CFO, Brian Olsavsky, said a portion of the additional costs the company saw in the quarter were outside its control—for example, rising fuel prices due to the Ukraine war and supply chain disruptions. But a bigger portion were controllable, he said, including the hiring and building binge the company went on to keep up with pandemic shopping demand. Amazon is now overstaffed, he said. 

What a change from the pandemic when Amazon couldn’t hire people and build warehouses fast enough. In his quote, Jassy hinted at a new era of frugality at Amazon, though he warned that the process of boosting productivity and finding other efficiencies “may take some time.” Buckle up. 

China’s Covid-19 Lockdowns to Hit Apple

Apple sailed through the March quarter without too many signs of damage from macroeconomic carnage. But chip shortages, and recent Covid-19 lockdowns at Apple’s Chinese factories, will squeeze the June quarter, the iPhone maker said today.

The resulting shortages of products—from the iPhone to Macs—will whack between $4 billion and $8 billion in revenue from the June quarter, which is the equivalent of 5% to 10% based on the previous-year quarter of $81 billion in revenue. Apple stock dipped 3% in after-hours trading.

It was a different story in the March quarter, when revenue rose 9%, which was “better than we anticipated,” CEO Tim Cook said. Chip shortages seemed to hurt iPad sales, which were flat. 

Yet Apple managed to lift Mac sales by 14%, despite supply constraints, a sign of how popular the M1 chip–powered MacBooks are. All in all, Apple did fine in the March quarter, but we may hear less talk about “record” performances on the July conference call.

Twitter and Musk Were Buying Stock at Same Time

Here’s an interesting side note from Twitter’s generally unremarkable first-quarter results today. 

It turns out Twitter was in the market buying back its own shares at the same time that Elon Musk was accumulating a 9.1% stake in the company. And the two were buying nearly the same number of shares.

Twitter said today it spent $2.1 billion buying back stock in the first quarter, which incidentally is more money than it has ever spent on stock repurchases in its history. Before this year, it had spent about $1.2 billion spread over 2020 and 2021. 

Twitter announced a $4 billion buyback program in February. But we learned today that it decided that same month to spend half of the money immediately. Musk, meanwhile, started buying on Jan. 31, snapping up stock every trading day in February and March, his securities disclosures show. He ended up spending about $2.5 billion.

The combination of the two big buyers would have driven up the price of Twitter higher than it would have traded otherwise. That’s worth bearing in mind when thinking through where Twitter shares would trade if Musk wasn’t on the scene.—Martin Peers

In Other News…

• Comcast’s Peacock streaming service lifted its paid subscribers to 13 million, up from 9 million at the end of 2021, thanks in part to its airing of the Super Bowl, Comcast said Thursday. While that’s a tiny fraction of the 222 million subscribers Netflix has, Comcast executives reminded investors again that they aren’t trying to be Netflix, but rather see Peacock as a complement to Comcast’s cable TV offering. “The noise in the rest of the streaming space just validates where we are going,” said Jeff Shell, head of Comcast’s NBCUniversal unit on an analyst call.
• Netflix has laid off at least eight members of the editorial staff for its fan site, Tudum, just five months after it launched, according to TechCrunch.
• The National Security Agency has once again chosen Amazon Web Services for a secretive cloud computing contract worth as much as $10 billion, nine months after Microsoft protested the agency’s initial decision to go with AWS, technology website Nextgov reported.
• Robinhood’s net revenue dropped 43% in the first quarter to $299 million as the brokerage app saw trading activity cool dramatically versus the previous year, when the meme-stock frenzy was at its peak. 

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